What is a REO (Foreclosure)?

With bank owned properties all negotiations are basically made between a buyer, with the assistance of his or her Real Estate broker, and an employee of the bank.  Standard purchase and sale agreements are used as well as the banks’ own addendum.

Before a bank forecloses they have one or more brokers provide and opinion of value.  Then at the time of foreclosure/listing they have the listing broker determine if that value is still valid.  Most of the time the bank is pricing near market and is expecting to transact the property close to the asking price.  If you feel the asking price is well over market it is best to have your Real Estate broker perform a market analysis and provide that information to the listing broker along with the offer.

Banks prefer not to make repairs so an “as-is” sale is best.  If repairs need to be made to facilitate FHA or Conventional financing, it is best to have supporting bids for the repairs accompany the offer so the bank knows the buyer is not just making numbers up.  Often times the house will be in a condition such that traditional lenders will not lend on the property.  In those cases, an all cash offer or possibly a construction loan, are necessary to get the deal done.

Earnest money will need to be in the form of a cashier’s check and proof of funds and or a loan approval will also need to accompany the offer.

Response to the offer may vary from within a few hours to up to a week.  Banks are usually unwilling to go through multiple counter offers and if they feel the potential buyer is trying to “steal” the deal they will not try to negotiate.  If the offer is solid (close to asking with few contingencies) it may get accepted without a counter.

Also be aware that your closing costs will increase with the purchase of an REO.  The buyer will pay for the survey, all title fees, transfer and deed stamps normally paid by the seller.  And, as in the State of Illinois, property taxes will only be prorated at 100%.

Key point in purchasing a bank owned property:  Banks do not give properties away!